In the past week, the crude oil prices surged to 10-month highs but then weakened on Friday. The drop on January 15 could has been caused by renewed COVID-19 fears. Lockdowns and travel restrictions will keep the oil demand and considerably low levels for the foreseeable future. Such a scenario, depending on its severity, may push the price of crude oil way below the $50 support once again.
Market experts and analysts say that it is not yet clear when there will be a gradual return to the pre-COVID crude and brent oil demand levels. On January 13, crude prices reached $53.9 but the health crisis and poor global macroeconomic data pinned oil markets down once more.
The entire world has been harassed by the health crisis for nearly a year now and the latest reports state that Germany might maintain its lockdown measures until early April 2021. On the other hand, the UK reported a new record death toll last week which may result in more restrictive measures to curb the spread of the disease in the coming days.
Vaccination rollout is slower than expected and more negative news has come stating that the Pfizer vaccine distribution may delay further in the European Union zone. The situation seems equally severe in the United States. However, President Joe Biden’s $1.9 trillion COVID relief proposal appears to keep the market in a positive mood.
At least two million people have died as a result of Covid-19 globally and it critical to note that China has also reported its first Covid-related death in over 8 months. CMC Markets analyst David Madden said:
“China’s growing health crisis has led to a fall in oil as it is the largest importer of energy in the world. The Beijing administration has put 22M people on lockdown due to rising COVID-19 cases, so oil demand fears are in circulation.”
All these factors may add some pressure on crude oil prices. Thus, it might not come as a surprise in the scenario that prices fall again below the critical $50 support. Moreover, travel lockdowns and restrictions might keep the demand for oil at low levels which is not a good influence on its prices.
The pandemic does not seem like it will slow down in the coming months and nobody knows when the pre-Covid oil demand levels will return. A surge in the value of the US dollar has also pressured crude prices. This means that the $50 support level may break easily if the dollar continues to gain its strength.
The $50 support zone seems to be under threat once more. Crude oil prices reached 10-month highs in the past week but then let off some steam as the weak came to an end. New lockdowns and other measures arising from renewed coronavirus spread worries affected the prices of oil significantly.
China is the leading oil importer in the world. When fears increase about the spread of the Pandemic in China, the prices of oil are bound to drop significantly. Hence, the nearest support zones may break in the short and mid-term. The supports at $50, $45, and $40 are expected to limit the prices from dropping sharply. However, if they break, lower $30s come into play.
On the upside, $55, $60, and $63 are the nearest resistance zones. If the oil markets see a change in fortune and spike, it would become a critical signal for investors to trade in crude oil.
Where will oil prices go from here? Time will tell depending on various factors that affect the global economy.